Can BP Continue On Its Road To Recovery?

With shares of BP (NYSE:BP) trading around $43, is BP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

BP is an integrated oil and gas company. The company provides its customers with fuel for transportation, energy for heat and light, lubricants and the petrochemicals products used to make everyday items as diverse as paints, clothes, and packaging. It operates in two business segments: Exploration and Production, and Refining and Marketing. BP provides essential energy products to consumer and companies worldwide. Without the oil and gas products provided, many consumers and businesses would not be able to operate on a daily basis. As businesses and consumers continue to need oil and gas products and services, BP stands to see rising profits.

T = Technicals on the Stock Chart are Mixed

BP stock has seen a modest rise over the last year or so. The company, along with its stock, is still trying to recover from the disaster it had in 2010. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, BP is trading around its key averages which signal neutral price action in the near-term.

BP

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of BP options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

BP Options

19.14%

80%

78%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on BP’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for BP look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

192.3%

-78.97%

8.03%

-124.38%

Revenue Growth (Y-O-Y)

10.06%

7.51%

-4.72%

-8.71%

Earnings Reaction

2.28%

1.35%

2.78%

-4.59%

BP has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have been optimistic about BP’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has BP stock done relative to its peers, Chevron (NYSE:CVX), Royal Dutch Shell (NYSE:RDSA), Exxon Mobil (NYSE:XOM), and sector?

BP

Chevron

Royal Dutch Shell

Exxon Mobil

Sector

Year-to-Date Return

4.11%

13.25%

-4.10%

5.25%

4.39%

BP has been a relative performance leader, year-to-date.

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Conclusion

BP is a provider of essential oil and gas products and services to companies and consumers operating in a wide range of industries around the world. The stock has been in recovery mode over the last few years after suffering heavy selling in 2010 because of the oil spill disaster. Over the last four quarters, earnings and revenue figures have been mixed for the company, regardless, investors have been optimistic about the company. Relative to its peers and sector, BP has been an average performer year-to-date. WAIT AND SEE what BP does in coming quarters.

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